Treaty on Stability, Coordination and Governance in the Economic and Monetary Union” adopted by the governments of the euro zone at the beginning of 2012. In addition to strict budget discipline and a debt brake, the contracting parties agreed on a stricter deficit procedure. – Whether the pact can prevent new debt crises is questionable. This is because undesirable developments on the labor market (unions force wage increases above the marginal product of labor [roughly: the company must pay more in wages per hour worked than the employee creates in value added], which leads to a loss of international competitiveness) and on the financial market are possible even with a balanced state budget. – Contrary to some statements in the media, the fiscal pact is by no means a fiscal union. Even if fiscal rules continue to be violated, national budget sovereignty is not relinquished. Responsibility for fiscal policy and thus also for implementing the agreed arrangements remains at national level. – Criticism of the fiscal pact emphasized that highly indebted countries need a very long time to move toward budgetary balance in very small steps. There, drastic austerity programs (radical austerity measures) exacerbate the crisis and lead to the opposite of what one would like to achieve. This is because the economic downturn is causing tax revenues to fall and transfer payments to rise. This in turn increases the national debt, which generates demands for new austerity measures, which then further exacerbates the crisis. This creates a vicious circle that is very difficult to break. – In any case, the causes of the imbalances must be addressed and reforms – such as, above all, the development of competition at all levels and efforts to create an efficient state administration and a stable legal system – must be implemented. – As long as action in all countries is not determined by the realization that resources must not be consumed in anticipation of future times by means of public debt in this generation (“culture of stability”), all corresponding agreements will ultimately be ineffective. – See adjustment automatism, bail-out, balance sheet adjustment, blame game, disfunctionality, currency area-related, key data, macroeconomic, blackmail potential, European Monetary Union, fundamental error, European Stability Mechanism, Euro Plus Package, EMU explosive, Financial Council, financial stability, Greece crisis, peer pressure, Ireland crisis, Japanization, perpetual motion machine, policy clamp, Policy default, Portugal crisis, bailout, debt drug, debt union, solidarity, financial, blocking account, sovereign debt pressure, Stability and Growth Pact, fundamental error, Tina, transfer union, imbalances, EMU internal, wealth levy, debt-productivity linkage, contract compliance, growth-debt fact, historical, growth promotion, competitiveness, forced expropriation. – See Deutsche Bundesbank Annual Report 2011, pp. 37 ff. (economic coordination in the EU in general and in particular; overview; references), ECB Annual Report 2012, pp. 151 f. (entry into force of the Treaty on January 1, 2013; debt brake), Deutsche Bundesbank Monthly Report of February 2012, pp. 64 ff. (presentation and assessment of the fiscal compact), ECB Monthly Report of March 2012, pp. 113 et seq. (presentation of the fiscal pact), ECB Monthly Report of May 2012, p. 85 et seq. (detailed and in-depth discussion of the fiscal pact), Deutsche Bundesbank Monthly Report of August 2013, p. 71 et seq. (new decisions on excessive deficit procedures), ECB Monthly Report of September 2013, p. 113 et seq. (results of the strengthening of the Stability and Growth Pact; further improvements are needed).
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